Lightstone Value Plus REIT III (LVVR) 424B3 Prospectus supplement

Filed pursuant to Rule 424(b)(3)
Registration No. 333-195292

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC.
SUPPLEMENT NO. 1 DATED JUNE 26, 2015 TO PROSPECTUS DATED APRIL 29, 2015

This prospectus supplement, dated June 26, 2015 (“Supplement No. 1”) is part of the prospectus of Lightstone Value Plus Real Estate Investment Trust III, Inc. (the “Company,” “we,” “us” or “our”), dated April 29, 2015 (the “Prospectus). This Supplement No. 1 supplements, modifies or supersedes certain information contained in the Prospectus and must be read in conjunction with the Prospectus. This Supplement No. 1 forms a part of, and must be accompanied by, the Prospectus.

The primary purposes of this Supplement No. 1 are to:

1. update the current investor suitability standard as it relates to Kentucky;

2. update our prospectus summary;

3. update our risk factors;

4. add disclosure relating to our property investments;

5. update our plan of distribution;

6. disclose the termination of the previously approved stock incentive plan and remove any references to the stock incentive plan from the Prospectus;

7. replace Appendix B — Lightstone Value Plus Real Estate Investment Trust III, Inc. Subscription Agreement;

8. attach as Appendix E a form of Automatic Purchase Plan Authorization Form; and

9. attach as Annex A to this Supplement No. 1 our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, filed with the Securities and Exchange Commission on May 13, 2015 (excluding the exhibits thereto).

PROSPECTUS UPDATES

Investor Suitability Standards

The first paragraph on page ii of the Prospectus underneath the heading “INVESTOR SUITABILITY STANDARDS — Kentucky” is hereby deleted and replaced with the following:

“Kentucky

• We are a real estate investment trust. As such, all Kentucky residents who invest in our securities must have a minimum gross annual income of $70,000 and a minimum net worth of $70,000 (as defined in the North American Securities Administrators Association’s (NASAA) Statement of Policy Regarding Real Estate Investment Trust (“SOP”)), or a minimum net worth alone of $250,000. Moreover, no Kentucky resident shall invest more than 10% of his or her liquid net worth (cash, cash equivalents and readily marketable securities) in our shares or the shares of our affiliate’s non-publicly traded real estate investment trusts.”

Table of Contents

The following is hereby added after “Appendix D Privacy Policy Notice” in the “Table of Contents” on page v of the Prospectus:

“Appendix E — Automatic Purchase Plan Authorization Form		E-1”

Prospectus Summary

The second paragraph under the heading “Do you currently have any Common Shares outstanding?” on pages 3 – 4 of the Prospectus is hereby deleted and replaced with the following:

“As of June 24, 2015, we have received gross proceeds of approximately $13.7 million from the sale of approximately 1.4 million Common Shares (including $2.0 million in Common Shares at a purchase price of $9.00 per Common Share to an entity 100% owned by Mr. Lichtenstein, who also owns a majority interest in our sponsor). We have also issued 5,820 Common Shares under our DRIP, which represents $55,285 of additional proceeds.”

The section in the chart covering “Awards Under Our Stock Incentive Plan” on page 20 of the Prospectus is hereby deleted in its entirety.

The section in the chart covering “Compensation of Independent Directors” on page 20 of the Prospectus is hereby deleted and replaced with the following:

“Type of Compensation	Determination of Amount	Estimated Amount for Maximum Offering (30 Million Common Shares)*
Compensation of Independent Directors	We pay to each of our independent directors a retainer of $30,000 per year plus reimbursement for expenses for each board or board committee meeting the director attends in person.	The independent directors, as a group, will receive for a full fiscal year, estimated aggregate compensation of approximately $90,000.”

S-1

Risk Factors

The fourth sentence in the second paragraph of the Risk Factor captioned “If we internalize our management functions, your interest in us could be reduced, and we could incur other significant costs associated with being self-managed.” on page 35 of the Prospectus is hereby deleted in its entirety.

The Risk Factor captioned “Your interest will be diluted if we issue additional securities.” on page 36 of the Prospectus is hereby deleted and replaced with the following:

“Your interest will be diluted if we issue additional securities.

Stockholders do not have preemptive rights to any shares issued by us in the future. Our charter currently authorizes us to issue 250.0 million shares of capital stock, of which 200.0 million shares are classified as Common Shares and 50.0 million shares are classified as preferred stock. Our board of directors may amend our charter from time to time to increase or decrease the number of authorized shares of capital stock, or the number of authorized shares of any class or series of stock designated, and may classify or reclassify any unissued shares into one or more classes or series without the necessity of obtaining stockholder approval. Shares will be issued at the discretion of our board of directors. Stockholders will likely experience dilution of their equity investment in us if we: (a) sell Common Shares in this offering or sell additional Common Shares in the future, including those issued pursuant to our DRIP; (b) sell securities that are convertible into Common Shares; or (c) issue Common Shares to sellers of properties acquired by us in connection with an exchange of limited partnership interests of our operating partnership. In addition, the operating partnership agreement for our operating partnership contains provisions that allow, under certain circumstances, other entities, including other Lightstone-sponsored programs, to merge into or cause the exchange or conversion of their interest for interests of our operating partnership. Because the limited partnership interests in our operating partnership may be exchanged for Common Shares, any merger, exchange or conversion of our operating partnership and another entity ultimately could result in the issuance of a substantial number of Common Shares, thereby diluting the percentage ownership interest of other stockholders. Because of these and other reasons described in this “Risk Factors” section, you should not expect to be able to own a significant percentage of our Common Shares.”

Management

The fourth, fifth and sixth sentences underneath the heading “Compensation of Directors” on page 83 of the Prospectus are hereby deleted in their entirety.

The section titled “Stock Incentive Plan” on pages 83 – 85 of Prospectus is hereby deleted in its entirety.

The section titled “Compliance with the American Jobs Creation Act” on page 85 of the Prospectus is hereby deleted in its entirety.

Compensation Table

The section in the chart covering “Awards Under Our Stock Incentive Plan” on page 98 of the Prospectus is hereby deleted in its entirety.

The section in the chart covering “Compensation of Independent Directors” on page 99 of the Prospectus is hereby deleted and replaced with the following:

“Type of Compensation	Determination of Amount	Estimated Amount for Maximum Offering (30 Million Common Shares)*
Compensation of Independent Directors	We pay to each of our independent directors a retainer of $30,000 per year plus reimbursement for expenses for each board or board committee meeting the director attends in person.	The independent directors, as a group, will receive for a full fiscal year, estimated aggregate compensation of approximately $90,000.”

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Investment Objectives and Criteria

The first bullet point under the heading “Other Charter Provisions Relating to Conflicts of Interest” on page 108 is hereby deleted and replaced with the following:

“• the amount of the fees and any other compensation, if any, and the size of the advisory fee in relation to the size, composition and profitability of our portfolio;”

Description of Real Estate Investments

The disclosure “DESCRIPTION OF REAL ESTATE INVESTMENTS - Potential Property Investments” on pages 128 – 129 of the Prospectus is hereby deleted and replaced with the following:

“Acquisition of a Courtyard by Marriot Located in Durham, North Carolina

On March 12, 2015, our sponsor, through an affiliate, entered into a purchase and sale agreement to acquire a 146-room select service hotel located in Durham, North Carolina, which we refer to as the Hampton Inn — Des Moines, from an unrelated third party. On January 14, 2015, our board of directors approved our subsequent acquisition of the Courtyard — Durham.

On May 15, 2015, we, through LVP CY Durham LLC, or LVP CY Durham, a subsidiary of our operating partnership, entered into an Assignment and Assumption of Purchase and Sale Agreement, or the Assignment, with Lightstone Acquisitions V LLC, or the Assignor, an affiliate of our sponsor. Under the terms of the Assignment, LVP CY Durham was assigned the rights and assumed the obligations of the Assignor with respect to that certain Purchase and Sale Agreement, or the Purchase Agreement, dated March 12, 2015, made between the Assignor as the purchaser and AWH-BP Durham Hotel, LLC as the seller, as amended, whereby the Assignor contracted to purchase the Courtyard — Durham, which operates as a Courtyard by Marriott pursuant to an existing franchise agreement with Marriott International, Inc., or Marriott.

On May 15, 2015, we, through LVP CY Durham, completed the acquisition of the Courtyard — Durham from the seller, an unrelated third party, for approximately $16.0 million, excluding closing costs. The acquisition was funded with approximately $4.0 million of offering proceeds and approximately $12.0 million of proceeds from a $13.0 million Revolving Promissory Note, or the Durham Promissory Note, from the operating partnership of Lightstone II. In connection with the acquisition, our advisor received an acquisition fee equal to 1.0% of the purchase price of $16.0 million, or approximately $160,000.

The Durham Promissory Note was entered into on May 15, 2015, has a term of one year, bears interest at a floating rate of three-month Libor plus 6.0% and requires quarterly interest payments through its stated maturity, with the entire unpaid balance due upon maturity. We paid an origination fee of $130,000 to Lightstone II in connection with the Revolving Promissory Note and pledged our ownership interest in LVP CY Durham as collateral for the Durham Promissory Note.

We established a TRS, LVP CY Durham Holding Corp, or LVP CY Durham TRS, which has entered into an operating lease agreement for the Courtyard — Durham. LVP CY Durham TRS also entered into a management agreement with an unrelated third party for the management of the Courtyard — Durham commencing on May 15, 2015 and a franchise agreement, or the Franchise Agreement with Marriott, pursuant to which the Hotel will continue to operate as a “Courtyard by Marriott,” commencing on May 15, 2015 through December 16, 2028.

The capitalization rate for the acquisition of the Courtyard — Durham is approximately 7.3%. We calculate the capitalization rate for a real property by dividing net operating income of the property by the purchase price of the property, excluding costs. For purposes of this calculation, net operating income is based upon the twelve-month period ended December 31, 2014. Additionally, net operating income is all gross revenues from the property less all operating expenses, including property taxes and management fees but excluding depreciation.

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The average occupancy rate, ADR and RevPAR are as follows:

Period	Average Occupancy Rate			ADR		RevPAR
Three months ended March 31, 2015		71.9	%	$	95.28	$	68.50
Year ended December 31, 2014		67.3	%	$	97.61	$	64.68
Year ended December 31, 2013		68.7	%	$	99.57	$	68.41
Year ended December 31, 2012		59.5	%	$	93.19	$	55.46
Year ended December 31, 2011		62.4	%	$	92.69	$	57.82
Year ended December 31, 2010		66.7	%	$	85.21	$	56.87

Depreciation is taken on the property. To the extent that property is acquired for cash, the initial basis in such property for U.S. federal income tax purposes generally is equal to the purchase price paid. We generally depreciate such depreciable property for U.S. federal income tax purposes on a straight-line basis using an estimated useful life of 39 years.

The basis of the property for U.S. federal income tax purposes generally approximates its net book value in accordance with GAAP.

Realty taxes paid and/or accrued for the year ended December 31, 2014 were approximately $0.1 million, at an annual rate of 1.4%.

We believe the underlying hotel property is well located, has acceptable roadway access and is well maintained. The underlying property is subject to competition from similar properties within its market areas, and its economic performance could be affected by changes in local economic conditions.”

Description of Shares

The last sentence under the heading “DESCRIPTION OF SHARES” on page 145 is hereby deleted and replaced with the following:

“As of June 24, 2015, 1.4 million Common Shares were issued and outstanding.”

Plan of Distribution

The following disclosure is added after the last paragraph under the heading “Subscription Process” on page 192 of the Prospectus:

“An investor may participate in our Automatic Purchase Plan, or APP, if the investor initials their subscription agreement, indicating that the investor is opting in to the APP and by executing the Lightstone Value Plus Real Estate Investment Trust III, Inc. Automatic Purchase Plan Authorization Form which can be requested from us. The APP allows an investor to make additional investments in us by authorizing automatic debits from their financial institution to be made on a monthly, quarterly, semi-annual or annual basis at the same price and on the same other terms as shares are then being sold in our primary offering. For the appropriate contact information, see the section entitled “Prospectus Summary — What is Lightstone Value Plus Real Estate Investment Trust III, Inc.”

Subscription Agreements

The form of subscription agreement included in this Supplement No. 1 is hereby added as Appendix B to the Prospectus. Appendix B hereby deletes in its entirety and replaces Appendix B — Lightstone Value Plus Real Estate Investment Trust III, Inc. Subscription Agreement to the Prospectus.

Automatic Purchase Plan Authorization Form

A form of Automatic Purchase Plan Authorization Form is attached as Appendix E to this supplement and is hereby included as Appendix E to our Prospectus.

Annex A

On May 13, 2015, we filed with the Securities and Exchange Commission our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, which is attached as Annex A to this Supplement No. 1.

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APPENDIX B

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC.
SUBSCRIPTION AGREEMENT

B-1

B-2

B-3

B-4

B-5

B-6

B-7

B-8

B-9

B-10

B-11

B-12

B-13

B-14

B-15

APPENDIX E

	LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC.
	AUTOMATIC PURCHASE PLAN AUTHORIZATION FORM

Standard Mail: Lightstone Group REIT, c/o DST, P.O. Box 219002, Kansas City, MO 64121-9002
Overnight Mail: Lightstone, c/o DST, 430 W. 7^th Street, Kansas City, MO 64105
For Questions, Please Call: (888) 808-7348

Please complete this form to authorize additional investments in Lightstone Value Plus Real Estate Investment Trust III, Inc. via automatic debits from a financial institution account. Each investor who elects to participate in the Automatic Purchase Plan (“The Plan”) agrees that the agreements, representations and warranties made by the Investor apply to all additional purchase made under the plan. The Investor also acknowledges and understands that the notices set forth also apply to additional purchases made under The Plan. Please see the Prospectus for further information.

ACCOUNT INFORMATION

Investor(s)/Registration Name:

Investor(s)/Registration Name:

Investor(s)/Registration Name:

Investor(s)/Registration Name:

Lightstone Value Plus Real Estate Investment Trust III, Inc. Account Number:

(for already existing investments)

FINANCIAL INSTITUTION ACCOUNT INFORMATION

Financial Institution Name:

Financial Institution ABA/Routing Number:

Financial Institution Account Number:

PLEASE SELECT JUST ONE FROM EACH:

Type of Account to be debited:	o Checking	o Savings
Date to Draft to occur:	o 1st of the Month	o 15th of the Month
Draft to be made:	o Monthly	o Quarterly	o Semi-Annually	o Annually

Dollar amount to draft each time(minimum of $100.00):

Start drafting on the following date:

Stop drafting on the following date:

The Quarterly Draft will occur on the chosen date of draft of the each calendar quarter. The Semi-Annually Draft will occur on the chosen date of draft in June and December. The Annual Draft will occur on the chosen date of draft in December. If the 1^st or 15^th is not a business day, the draft will occur from the account on the next business day.

Please enclose a voided check for the appropriate account to participate in The Plan. By enclosing a voided check, you authorize the Fund to begin making electronic debits from the checking account designated by the closed voided check. Such deductions and investments will continue until you notify the Fund in writing to change or discontinue them. Should your checking account contain insufficient funds to cover the authorized deduction, no deduction or investment will occur. In such event, your bank may charge you a fee for insufficient funds.

AUTHORIZATION AND SIGNATURES:

All investor(s)/registration owner(s) must sign the form to authorize the above instructions.

Signature of Owner:	Date:
Signature of Owner:	Date:

E-1

Annex A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           

Commission file number 333-195292

 

LIGHTSTONE VALUE PLUS REAL ESTATE
INVESTMENT TRUST III, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland	46-1140492
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1985 Cedar Bridge Avenue, Suite 1 Lakewood, New Jersey	08701
(Address of Principal Executive Offices)	(Zip Code)

(732) 367-0129

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero	Accelerated filero	Non-accelerated filero	Smaller reporting companyþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

As of May 10, 2015, there were approximately 1.1 million outstanding shares of common stock of Lightstone Value Plus Real Estate Investment Trust III, Inc., including shares issued pursuant to the dividend reinvestment plan.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

INDEX

	Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements		A-1
Consolidated Balance Sheets as of March 31, 2015 (unaudited) and December 31, 2014		A-1
Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2015 and 2014		A-2
Consolidated Statement of Stockholders’ Equity (unaudited) for the Three Months Ended March 31, 2015		A-3
Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2015 and 2014		A-4
Notes to Consolidated Financial Statements (unaudited)		A-5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of   Operations		A-10
Item 3. Quantitative and Qualitative Disclosures About Market Risk		A-21
Item 4. Controls and Procedures		A-21
PART II OTHER INFORMATION
Item 1. Legal Proceedings		A-21
Item 1A. Risk Factors		A-21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		A-22
Item 3. Defaults Upon Senior Securities		A-22
Item 4. Mine Safety Disclosures		A-22
Item 5. Other Information		A-22
Item 6. Exhibits		A-23

A-i

PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS

	March 31, 2015			December 31, 2014
	(Unaudited)
Assets
Investment property:
Land and improvements	$	1,178,845		$	—
Building and improvements		9,201,155			—
Furniture and fixtures		521,875			—
Gross investment property		10,901,875			—
Less accumulated depreciation		(55,853	)		—
Net investment property		10,846,022			—
Cash		2,742,398			1,738,026
Deposits		—			500,000
Prepaid expenses and other assets		394,388			182,078
Total Assets	$	13,982,808		$	2,420,104
Liabilities and Stockholders’ Equity
Accounts payable and other accrued expenses	$	686,575		$	169,608
Revolving promissory note – related party		7,000,000			—
Due to affiliate		1,831,978			1,934,970
Distributions payable		36,987			—
Total liabilities		9,555,540			2,104,578
Commitments and Contingencies
Stockholders’ Equity:
Company’s stockholders’ equity:
Preferred stock, $0.01 par value; 50,000,000 shares authorized, none issued and outstanding		—			—
Common stock, $0.01 par value; 200,000,000 shares authorized, 838,946 and 286,674 shares issued and outstanding, respectively		8,389			2,867
Additional paid-in-capital		5,027,780			455,880
Subscription receivable		(161,500	)		—
Accumulated deficit		(449,316	)		(145,196	)
Total Company stockholders’ equity		4,425,353			313,551
Noncontrolling interests		1,915			1,975
Total Stockholders’ Equity		4,427,268			315,526
Total Liabilities and Stockholders’ Equity	$	13,982,808		$	2,420,104

 
 
The accompanying notes are an integral part of these consolidated financial statements.

A-1

PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	For the Three Months Ended March 31,
	2015			2014
Revenues	$	553,422		$	—
Expenses:
Property operating expenses		313,255			—
Real estate taxes		31,734			—
General and administrative costs		270,948			1,267
Depreciation and amortization		57,445			—
Total operating expenses		673,382			1,267
Operating loss		(119,960	)		(1,267	)
Interest expense		(96,293	)		—
Other expense, net		(375	)		—
Net loss		(216,628	)		(1,267	)
Less: net loss attributable to noncontrolling interests		34			—
Net loss applicable to Company’s common shares	$	(216,594	)	$	(1,267	)
Net loss per Company’s common shares, basic and diluted	$	(0.41	)	$	(0.06	)
Weighted average number of common shares outstanding, basic and diluted		528,564			20,000

 
 
The accompanying notes are an integral part of these consolidated financial statements.

A-2

PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)

	Common Shares				Additional Paid-In Capital			Subscription Receivable			Accumulated Deficit			Total Noncontrolling Interests			Total Equity
	Common Shares		Amount
BALANCE, December 31, 2014		286,674	$	2,867	$	455,880		$	—		$	(145,196	)	$	1,975		$	315,526
Net loss		—		—		—			—			(216,594	)		(34	)		(216,628	)
Distributions declared		—		—		—			—			(87,526	)		—			(87,526	)
Distributions paid to noncontrolling interests		—		—		—			—			—			(26	)		(26	)
Proceeds from offering		551,400		5,514		5,469,385			(161,500	)		—			—			5,313,399
Selling commissions and dealer manager fees		—		—		(511,107	)		—			—			—			(511,107	)
Other offering costs		—		—		(394,656	)		—			—			—			(394,656	)
Shares issued from distribution reinvestment program		872		8		8,278			—			—			—			8,286
BALANCE, March 31, 2015		838,946	$	8,389	$	5,027,780		$	(161,500	)	$	(449,316	)	$	1,915		$	4,427,268

 
 
The accompanying notes are an integral part of these consolidated financial statements.

A-3

PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	For the Three Months Ended March 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(216,628	)	$	(1,267	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		57,445			—
Amortization of deferred financing costs		16,667			—
Other non-cash adjustments		66			—
Changes in assets and liabilities:
Increase in prepaid expenses and other assets		(130,635	)		—
Increase in accounts payable and other accrued expenses		147,240			250
Increase in due to affiliate		19,536			—
Net cash used in operating activities		(106,309	)		(1,017	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment property		(10,192,950	)		—
Net cash used in investing activities		(10,192,950	)		—
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving promissory note – related party		8,200,000			—
Payment on revolving promissory note – related party		(1,200,000	)		—
Payment of loan fees and expenses		(100,000	)		—
Proceeds from issuance of common stock		5,313,399			—
Payment of commissions and offering costs		(867,489	)		—
Distributions to noncontrolling interests		(26	)		—
Distributions to common stockholders		(42,253	)		—
Net cash provided by financing activities		11,303,631			—
Net change in cash		1,004,372			(1,017	)
Cash, beginning of year		1,738,026			198,726
Cash, end of period	$	2,742,398		$	197,709
Supplemental cash flow information for the periods indicated is as follows:
Cash paid for interest	$	78,408		$	—
Distributions declared, but not paid	$	36,987		$	—
Commissions and other offering costs accrued but not paid	$	296,122		$	—
Subscription receivable	$	161,500		$	—
Value of shares issued from distribution reinvestment program	$	8,286		$	—
Application of deposit to acquisition of investment property	$	500,000		$	—

 
 
The accompanying notes are an integral part of these consolidated financial statements.

A-4

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements

1. Organization

Lightstone Value Plus Real Estate Investment Trust III, Inc. (“Lightstone REIT III”), incorporated on October 5, 2012, in Maryland, intends to elect to qualify and be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2015. The Company will seek to acquire hotels and other commercial real estate assets primarily located in the United States. All such properties may be acquired and operated by the Company alone or jointly with another party. The Company may also originate or acquire mortgage loans secured by real estate.

The Lightstone REIT III is structured as an umbrella partnership REIT, or UPREIT, and substantially all of its current and future business will be conducted through Lightstone Value Plus REIT III LP, a Delaware limited partnership (the “Operating Partnership”).

Lightstone REIT III and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns refers to Lightstone REIT III, its Operating Partnership or the Company as required by the context in such pronoun used.

Lightstone REIT III sold 20,000 Common Shares to Lightstone Value Plus REIT III LLC, a Delaware limited liability company (the “Advisor”), an entity majority owned by David Lichtenstein, on December 24, 2012, for $10.00 per share. Mr. Lichtenstein also is a majority owner of the equity interests of Lightstone REIT III’s sponsor, The Lightstone Group, LLC (the “Sponsor”). Subject to the oversight of the Company’s board of directors (the “Board of Directors”), the Advisor has primary responsibility for making investment decisions and managing the Company’s day-to-day operations. Through his ownership and control of The Lightstone Group, Mr. Lichtenstein is the indirect owner of the Advisor and the indirect owner and manager of Lightstone SLP III LLC, which has subordinated participation interests in the Operating Partnership. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT III or the Operating Partnership.

Lightstone REIT III invested the proceeds received from the Advisor in the Operating Partnership, and as a result, held a 99% general partnership interest as of March 31, 2015 in the Operating Partnership’s partner units.

The Company’s registration statement on Form S-11 (the “Offering”), pursuant to which it is offering to sell up to 30,000,000 shares of its common stock, par value $0.01 per share (which may be referred to herein as “shares of common stock” or as “Common Shares”) for $10.00 per share, subject to certain volume and other discounts (exclusive of 10,000,000 shares available pursuant to its distribution reinvestment plan (the “DRIP”) at an initial purchase price of $9.50 per share) was declared effective by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933 on July 15, 2014. As of March 31, 2015, the Company had received gross proceeds of $8.1 million from the sale of 0.8 million shares of its common stock (including $2.0 million in Common Shares at a purchase price of $9.00 per Common Share to an entity 100% owned by David Lichtenstein, who also owns a majority interest in the Company’s Sponsor). The Company intends to sell shares of its common stock under the Offering until the earlier of the date on which all the shares are sold, or July 15, 2016, two years from the date the Offering was declared effective by the SEC. The Company reserves the right to reallocate the shares of common stock it is offering between the primary offering and the DRIP. Additionally, the Offering may be terminated at any time.

The Company has no employees. The Company has retained the Advisor to manage its affairs on a day-to-day basis. Beacon Property Management Limited Liability Company and Paragon Retail Property Management LLC (the “Property Managers”) may serve as property managers. Orchard Securities, LLC (the “Dealer Manager”), a third party not affiliated with the Company, the Sponsor or the Advisor, will serve as the dealer manager of the Company’s public offering. The Advisor and Property Managers are affiliates of the Sponsor. These related parties will receive compensation and fees for services related to the investment and management of the Company’s assets. These entities will receive fees during the Company’s offering, acquisition, operational and liquidation stages. (See Note 6 for a summary of related-party fees.)

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements

1. Organization – (continued)

Noncontrolling Interests

Partners of Operating Partnership

On July 16, 2014, the Advisor contributed $2,000 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. The limited partner has the right to convert operating partnership units into cash or, at the option of the Company, an equal number of common shares of the Company, as allowed by the limited partnership agreement.

Lightstone SLP III LLC (the “Special Limited Partner”), a Delaware limited liability company of which Mr. Lichtenstein is the majority owner, will be a special limited partner in the Operating Partnership and has committed to purchase subordinated profits interests in the Operating Partnership (the “Subordinated Participation Interests”) at a cost of $50,000 per unit for each $1.0 million in subscriptions accepted for the Offering or any follow-on offering on a semi-annual basis beginning with the quarter ended June 30, 2015. The Special Limited Partner may elect to purchase the Subordinated Participation Interests for cash or may contribute interests in real property of equivalent value. The Subordinated Participation Interests may be entitled to receive liquidation distributions upon the liquidation of Lightstone REIT III. (See Note 6 for a summary of related-party fees).

2. Summary of Significant Accounting Policies

The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014. The unaudited interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented. The accompanying unaudited consolidated financial statements of the Lightstone Value Plus Real Estate Investment Trust II, Inc. and its Subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of real estate, depreciable lives, and revenue recognition. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.

The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Lightstone REIT III and the Operating Partnership and its subsidiaries (over which the Company exercises financial and operating control). As of March 31, 2015, the Lightstone REIT III had a 99% general partnership interest in the common units of the Operating Partnership. All inter-company accounts and transactions have been eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity for which the Company is the primary beneficiary.

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies – (continued)

New Accounting Pronouncements

In May 2014, the FASB issued an accounting standards update that completes the joint effort by the FASB and International Accounting Standards Board to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards. The update applies to all companies that enter into contracts with customers to transfer goods or services and is effective for us for interim and annual reporting periods beginning after December 15, 2016. Early application is not permitted and companies have the choice to apply the update either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying the update at the date of initial application (January 1, 2017) and not adjusting comparative information. The Company is currently evaluating the requirements and impact of this update on its consolidated financial statements.

In April 2015, the FASB issued an accounting standards update to simplify the presentation of debt issuance costs. This update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This new guidance will be effective for the Company beginning January 1, 2016. The Company is currently evaluating the impact of this standard on our consolidated financial statements.

3. Acquisitions

On February 4, 2015, the Company completed the acquisition of a 120-room select service hotel located in Des Moines, Iowa (the “Hampton Inn — Des Moines”) from an unrelated third party, for an aggregate purchase price of approximately $10.9 million less adjustments, paid in cash, excluding closing and other related transaction costs. In connection with the acquisition, the Company’s Advisor received an acquisition fee equal to 1.0% of the contractual purchase price, approximately $0.1 million. The acquisition was funded with approximately $2.7 million of offering proceeds and approximately $8.2 million of proceeds from a $10.0 million Revolving Promissory Note (the “Revolving Promissory Note”) from the operating partnership of Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone II”), a real estate investment trust also sponsored by the Company’s sponsor.

The Revolving Promissory Note was entered into on February 4, 2015, has a term of one year, bears interest at a floating rate of three-month Libor plus 6.0% (6.3% as of March 31, 2015) and requires quarterly interest payments through its stated maturity with the entire unpaid balance due upon maturity. The Company paid an origination fee of $100,000 to Lightstone II in connection with the Revolving Promissory Note and pledged its ownership interest in the Hampton Inn — Des Moines as collateral for the Revolving Promissory Note.

The acquisition of the Hampton Inn — Des Moines was accounted for under the purchase method of accounting with the Company treated as the acquiring entity. Accordingly, the consideration paid by the Company to complete the acquisition of the Hampton Inn — Des Moines has been allocated to the assets acquired based upon their fair values as of the date of the acquisition. Approximately $1.2 million was allocated to land and improvements, $9.2 million was allocated to building and improvements, and $0.5 million was allocated to furniture and fixtures and other assets.

The capitalization rate for the acquisition of the Hampton Inn — Des Moines is approximately 11.3%. We calculate the capitalization rate for a real property by dividing net operating income of the property by the purchase price of the property, excluding costs. For purposes of this calculation, net operating income is based upon the twelve-month period ended July 31, 2014. Additionally, net operating income is all gross revenues from the property less all operating expenses, including property taxes and management fees but excluding depreciation.

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements

3. Acquisitions – (continued)

Financial Information

The following table provides the total amount of rental revenue and net income included in the Company’s consolidated statements of operations from the Hampton Inn — Des Moines since its date of acquisition for the period indicated:

	For the Three Months Ended March 31, 2015
Rental revenue	$	553,422
Net loss	$	(167,689	)

The following table provides unaudited pro forma results of operations for the period indicated, as if Hampton Inn — Des Moines had been acquired at the beginning of each period. Such pro forma results are not necessarily indicative of the results that actually would have occurred had these acquisitions been completed on the date indicated, nor are they indicative of the future operating results of the combined company.

	For the Three Months Ended March 31,
	2015			2014
Pro forma rental revenue	$	912,684		$	923,818
Pro forma net (loss)/income	$	(181,475	)	$	89,039
Pro forma net (loss)/income per Company’s common share, basic and diluted	$	(0.34	)	$	4.45

4. Selling Commissions, Dealer Manager Fees and Other Offering Costs

Selling commissions and dealer manager fees are paid to the Dealer Manager, pursuant to various agreements, and other third-party offering expenses such as registration fees, due diligence fees, marketing costs, and professional fees are accounted for as a reduction against additional paid-in capital (“APIC”) as costs are incurred. Organizational costs are expensed as general and administrative costs. The following table represents the selling commissions and dealer manager and other offering costs for the periods indicated:

	For the Three Months Ended March 31,
	2015		2014
Selling commissions and dealer manager fees	$	511,107	$	—
Other offering costs	$	394,656	$	—

Since the Company’s inception through March 31, 2015, it has incurred approximately $0.6 million in selling commissions and dealer manager fees and $2.5 million of other offering costs in connection with the public offering of shares of its common stock.

5. Earnings per Share

The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, basic and diluted earnings per share is calculated by dividing earnings attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period.

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements

6. Related Party Transactions

The Company has agreements with the Advisor and the Property Managers to pay certain fees in exchange for services performed by these entities and other affiliated entities. The Company’s ability to secure financing and subsequent real estate operations are dependent upon its Advisor, Property Manager and their affiliates to perform such services as provided in these agreements.

For the three months ended March 31, 2015, the only amount that the Company paid to the Advisor was an acquisition fee of $109,000. No amounts were paid to the Advisor for the three months ended March 31, 2014.

The Advisor will advance the organization and offering expenses to the extent that the Company does not have the funds to pay such expenses. The related liability of approximately $1.8 million as of March 31, 2015 for these organization and offering costs is included in Due to affiliate in the consolidated balance sheets.

7. Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash, restricted escrows, accounts receivable (included in other assets), accounts payable and accrued expenses approximated their fair values because of the short maturity of these instruments.

As of March 31, 2015, the estimated fair value of the Revolving Promissory Note approximated its carrying value because of its floating interest rate.

8. Commitments and Contingencies

Legal Proceedings

From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes. As of the date hereof, we are not a party to any material pending legal proceedings.

9. Subsequent Events

Distribution Payment

On April 15, 2015, the Company paid the distribution for the month ending March 31, 2015 of approximately $36,987. The aggregate distributions for the period from December 11, 2014 (date of breaking escrow) through March 31, 2015 of $87,526 was paid in full using a combination of cash and 2,046 shares of the Company’s common stock issued pursuant to the Company’s Distribution Reinvestment Program (“DRIP”), at a discounted price of $9.50 per share. The distribution was paid from offering proceeds (approximately $68,088 or 78%) and excess cash proceeds from the issuance of common stock through the Company’s DRIP (approximately $19,438 or 22%).

Distribution Declaration

On May 13, 2015, the Board of Directors authorized and the Company declared a distribution for each month during the three-month period ending September 30, 2015. The distribution will be calculated based on shareholders of record each day during this three-month period at a rate of $0.00164383 per day, and will equal a daily amount that, if paid each day for a 365-day period, would equal a 6.0% annualized rate based on a share price of $10.00 payable on by the 15^th day following each month end to stockholders of record at the close of business each day during the prior month.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust III, Inc. and Subsidiaries and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus Real Estate Investment Trust III, Inc., a Maryland corporation, and, as required by context, Lightstone Value Plus REIT III, L.P., which we collectively refer to as the “Operating Partnership”.

Forward-Looking Statements

Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by us with the Securities and Exchange Commission (the “SEC”), contain or will contain, forward-looking statements. All statements, other than statements of historical facts, including, among others, statements regarding our possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives, are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of Lightstone Value Plus Real Estate Investment Trust III, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements.

Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements.

Risks and other factors that might cause differences, some of which could be material, include, but are not limited to, economic and market conditions, competition, tenant or joint venture partner(s) bankruptcies, our lack of operating history, the availability of cash flows from operations to pay distributions, changes in governmental, tax, real estate and zoning laws and regulations, failure to increase tenant occupancy and operating income, rejection of leases by tenants in bankruptcy, financing and development risks, construction and lease-up delays, cost overruns, the level and volatility of interest rates, the rate of revenue increases versus expense increases, the financial stability of various tenants and industries, the failure of the Company to make additional investments in real estate properties, the failure to upgrade our tenant mix, restrictions in current financing arrangements, the failure to fully recover tenant obligations for common area maintenance, insurance, taxes and other property expenses, the failure of the Company to continue to qualify as a real estate investment trust (“REIT”), the failure to refinance debt at favorable terms and conditions, an increase in impairment charges, loss of key personnel, failure to achieve earnings/funds from operations targets or estimates, conflicts of interest with the Advisor and the Sponsor and their affiliates, failure of joint venture relationships, significant costs related to environmental issues as well as other risks listed from time to time in this Form 10-Q, our form 10-K, our Registration Statements on Form S-11, as the same may be amended and supplemented from time to time, and in the Company’s other reports filed with the SEC.

We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless required by law.

Overview

Lightstone Value Plus Real Estate Investment Trust III, Inc. (the “Lightstone REIT III”) and Lightstone Value Plus REIT III, LP, (the “Operating Partnership”) are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns refers to the Lightstone REIT III, its Operating Partnership or the Company as required by the context in which such pronoun is used.

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Lightstone REIT III intends to continue to acquire and operate commercial, residential and hospitality properties, principally in North America. Principally through the Operating Partnership, our future acquisitions may include both portfolios and individual properties. We expect that our commercial holdings will consist of retail (primarily multi-tenanted shopping centers), lodging, industrial and office properties and that our residential properties will be located either in or near major metropolitan areas.

Capital required for the future purchases of real estate and/or real estate related investments is expected to be obtained from public offerings of shares of our common stock and from any indebtedness that we may incur either in connection with the acquisition of any real estate and real estate related investments or thereafter. We are dependent upon the net proceeds from public offerings of our common stock to conduct our proposed activities.

We sold 20,000 Common Shares to Lightstone Value Plus REIT III LLC, a Delaware limited liability company (the “Advisor”), an entity majority owned by David Lichtenstein, on December 24, 2012, for $10.00 per share. Mr. Lichtenstein also is a majority owner of the equity interests of our sponsor, The Lightstone Group, LLC (the “Sponsor”).

Our registration statement on Form S-11(the “Offering”), pursuant to which we are offering to sell up to 30,000,000 shares of our common stock (which may be referred to herein as “shares of common stock” or as “Common Shares”) for $10.00 per share, subject to certain volume and other discounts (exclusive of 10,000,000 shares available pursuant to its distribution reinvestment plan (the “DRIP”) at an initial purchase price of $9.50 per share) was declared effective by SEC under the Securities Act of 1933 on July 15, 2014. As of March 31, 2015, we had received gross proceeds of $8.1 million from the sale of 0.8 million shares of our common stock (including $2.0 million in Common Shares at a purchase price of $9.00 per Common Share to an entity 100% owned by David Lichtenstein, who also owns a majority interest in the Company’s Sponsor).

We have no employees. We have retained the Advisor to manage our affairs on a day-to-day basis. Beacon Property Management Limited Liability Company and Paragon Retail Property Management LLC (the “Property Managers”) may serve as property managers. Orchard Securities, LLC (the “Dealer Manager”) will serve as the dealer manager of our public offering. The Advisor and Property Managers are affiliates of the Sponsor. These related parties will receive compensation and fees for services related to the investment and management of our assets. These entities will receive fees during our offering, acquisition, operational and liquidation stages.

To maintain our qualification as a REIT, we may engage in certain activities through wholly-owned taxable REIT subsidiaries (“TRS”). As such, we will be subject to U.S. federal and state income and franchise taxes from these activities.

Current Environment

Our operating results as well as our investment opportunities are impacted by the health of the North American economies. Our business and financial performance may be adversely affected by current and future economic conditions, such as availability of credit, financial markets volatility, and recession.

Our business may be affected by market and economic challenges experienced by the U.S. and global economies. These conditions may materially affect the value and performance of our properties, and may affect our ability to pay distributions, the availability or the terms of financing that we have or may anticipate utilizing, and our ability to make principal and interest payments on, or refinance, any outstanding debt when due.

We are not aware of any other material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting real estate generally, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from the acquisition and operation of real estate and real estate related investments, other than those referred to in this Form 10-Q.

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Portfolio Summary — 

	Location		Year Built		Year to Date Available Rooms		Percentage Occupied for the Three Months Ended March 31, 2015			Revenue per Available Room for the Three Months Ended March 31, 2015		Average Daily Rate For the Three Months Ended March 31, 2015
Hampton Inn – Des Moines (Acquired February 4, 2015)		Des Moines, Iowa		1987		6,720		72	%	$	82.04	$	113.49

Annualized base rent is defined as the minimum monthly base rent due as of March 31, 2015 annualized, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants’ sales. The annualized base rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants.

Critical Accounting Policies and Estimates

There were no material changes during the three months ended March 31, 2015 to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2014.

Results of Operations

The Company’s primary financial measure for evaluating its properties is net operating income (“NOI”). NOI represents revenues less property operating expenses, real estate taxes and general and administrative expenses. The Company believes that NOI is helpful to investors as a supplemental measure of the operating performance of a real estate company because it is a direct measure of the actual operating results of the Company’s properties.

For the Three Months Ended March 31, 2015 vs. March 31, 2014

Consolidated

The Company had no investment property with operating results for the three months ended March 31, 2014. The rental revenue, property operating expenses, real estate taxes, general and administrative costs, depreciation and amortization and the resulting operating loss for the three months ended March 31, 2015 is primarily attributable to the Hampton Inn — Des Moines, which was acquired on February 4, 2015.

Financial Condition, Liquidity and Capital Resources

Overview:

For the year three months ended March 31, 2015, our primary source of funds were (i) $5.3 million of proceeds from our sale of shares of common stock under our Offering and $7.0 million in net proceeds from our Revolving Promissory Note. The primary source of capital required to fund our future purchases of real estate and/or real estate related investments will principally come from the proceeds related to our public offering of shares of our common stock and from any indebtedness that we may incur in connection with the acquisition and operations of any real estate investments thereafter.

We intend to utilize leverage either in connection with acquiring our properties or subsequent to their acquisition. The number of different properties we will acquire will be affected by numerous factors, including, the amount of funds available to us. When interest rates on mortgage loans are high or financing is otherwise unavailable on terms that are satisfactory to us, we may purchase certain properties for cash with the intention of obtaining a mortgage loan for a portion of the purchase price at a later time.

Our future sources of funds will primarily consist of (i) proceeds from our sale of shares of common stock under our Offering, (ii) cash flows from our operations, (iii) proceeds from our borrowings and (iv) our DRIP. We currently believe that these cash resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other than these sources within the next twelve months.

We currently have a $10.0 million Revolving Promissory Note (the “Revolving Promissory Note”) with an outstanding principal balance of $7.0 million as of March 31, 2015. We intend to limit our aggregate

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long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to our stockholders. Market conditions will dictate our overall leverage limit; as such our aggregate long-term permanent borrowings may be less than 75% of aggregate fair market value of all properties. We may also incur short-term indebtedness, having a maturity of two years or less.

Our charter provides that the aggregate amount of our borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a satisfactory showing that a higher level is appropriate, the approval of our Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. Market conditions will dictate our overall leverage limit; as such our aggregate borrowings may be less than 300% of net assets. As of March 31, 2015, our total borrowings were $7.0 million which represented 161% of our net assets.

Our future borrowings may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In addition, we may acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally, though not exclusively, we intend to seek to encumber our properties with non-recourse debt. This means that a lender’s rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion, secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property owning entity, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property owning entity.

In general the type of future financing executed by us to a large extent will be dictated by the nature of the investment and current market conditions. For long-term real estate investments, it is our intent to finance future acquisitions using long-term fixed rate debt. However there may be certain types of investments and market circumstances which may result in variable rate debt being the more appropriate choice of financing. To the extent floating rate debt is used to finance the purchase of real estate, management will evaluate a number of protections against significant increases in interest rates, including the purchase of interest rate cap instruments.

We may also obtain lines of credit to be used to acquire properties. If obtained, these lines of credit will be at prevailing market terms and will be repaid from offering proceeds, proceeds from the sale or refinancing of properties, working capital and/or permanent financing. Our Sponsor and/or its affiliates may guarantee our lines of credit although they are not obligated to do so. We may draw upon lines of credit to acquire properties pending our receipt of proceeds from our public offerings. We expect that such properties may be purchased by our Sponsor’s affiliates on our behalf, in our name, in order to minimize the imposition of a transfer tax upon a transfer of such properties to us.

In addition to making investments in accordance with our investment objectives, we have used and expect to continue use our capital resources to make certain payments to our Advisor, our Dealer Manager, and our Property Manager during the various phases of our organization and operation. During our organizational and offering stage, these payments include payments to our Dealer Manager for selling commissions and the dealer manager fee, and payments to our Advisor for the reimbursement of organization and other offering costs.

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Selling commissions and dealer manager fees are paid to the Dealer Manager or soliciting dealers, as applicable, pursuant to various agreements, and other third-party offering expenses such as registration fees, due diligence fees, marketing costs, and professional fees are accounted for as a reduction against additional paid-in capital as costs are incurred. Any organizational costs are accounted for as general and administrative costs. The following table represents the selling commissions and dealer manager fees and other offering costs for the periods indicated:

	For the Three Months Ended March 31,
	2015		2014
Selling commissions and dealer manager fees	$	511,107	$	—
Other offering costs	$	394,656	$	—

Since the Company’s inception through March 31, 2015, it has incurred approximately $0.6 million in selling commissions and dealer manager fees and $2.5 million of other offering costs in connection with the public offering of shares of its common stock. The Advisor will advance the organization and offering expenses to the extent that the Company does not have the funds to pay such expenses. The related liability of approximately $1.8 million as of March 31, 2015 for these organization and offering expenses is included in Due to affiliate in the consolidated balance sheets.

The Company expects that organization and offering expenses, other than selling commissions and dealer manager fees, will amount to approximately 2.0% of gross offering proceeds. In no event will organization and offering expenses exceed 15.0% of gross offering proceeds. During the initial stage of our Offering, the organization and offering expenses may exceed 15.0% of gross offering proceeds since many of the expenses incurred in relation to the Offering are incurred prior to the sale of shares of our common stock.

During the acquisition and development stage, payments may include asset acquisition fees and financing coordination fees, and the reimbursement of acquisition related expenses to our Advisor. During the operational stage, we will pay our Property Managers and/or other third party property managers a property management fee and our Advisor an asset management fee or asset management participation or construction management fees. We will also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services provided to us. Upon liquidation of assets, we may pay our Advisor or its affiliates a real estate disposition commission. Additionally, our Operating Partnership may be required to make distributions to Lightstone SLP III LLC, an affiliate of the Advisor.

For the three months ended March 31, 2015, the only amount that the Company paid to the Advisor was an acquisition fee of $109,000. No amounts were paid to the Advisor for the three months ended March 31, 2014.

Summary of Cash Flows

The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below:

	For the Three Months Ended March 31,
	2015			2014
Net cash used in operating activities	$	(106,309	)	$	(1,017	)
Net cash used in investing activities		(10,192,950	)
Net cash provided by financing activities		11,303,631			—
Net change in cash		1,004,372			(1,017	)
Cash, beginning of year		1,738,026			198,726
Cash, end of the period	$	2,742,398		$	197,709

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Our principal source of cash flow was derived from proceeds received from our Offering and our Revolving Promissory Note. In the future, we expect to acquire properties which should provide a relatively consistent stream of cash flow to provide us with resources to fund our operating expenses, any scheduled debt service and any quarterly distributions authorized by our Board of Directors.

Our principal demands for liquidity currently are expected to be acquisition and development activities, scheduled debt service and costs associated with our public offerings. The principal sources of funding for our operations are currently expected to be proceeds from the issuance of equity securities.

Operating activities

The net cash used in operating activities of $106,309 during the 2015 period primarily related to our loss of $216,628 offset by non-cash items of $74,178 and by changes in assets and liabilities of $36,141.

Investing activities

The net cash used in investing activities of $10.2 million during the 2015 period consisted of approximately $10.7 million of net cash used for the purchase of the Hampton Inn –Des Moines which included a deposit of $500,000 paid prior to the 2015 period.

Financing activities

The net cash provided by financing activities of $11.3 million during the 2015 consisted of $7.0 million in net proceeds from our Revolving Promissory Note and $5.3 million of offering proceeds offset by approximately $0.9 million of commissions and offering costs and $0.1 million of loan fees and expenses.

We believe that these cash resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other than these sources within the next twelve months.

Distribution Reinvestment Plan and Share Repurchase Program

Our DRIP provides our stockholders with an opportunity to purchase additional shares of our common stock at a discount by reinvesting distributions. The offering provides for 10.0 million shares available for issuance under our DRIP and our initial DRIP price per share of common stock is $9.50.

Our share repurchase program may provide our stockholders with limited, interim liquidity by enabling them to sell their shares of common stock back to us, subject to certain restrictions.

As of March 31, 2015 no shares have been repurchased under our share repurchase program.

Our Board of Directors reserves the right to terminate either program for any reason without cause by providing written notice of termination of the DRIP to all participants or written notice of termination of the share repurchase program to all stockholders.

Contractual Obligations

The Revolving Promissory Note bears interest at a floating rate of three-month Libor plus 6.0% (6.3% as of March 31, 2015) and requires quarterly interest payments through its stated maturity with the entire unpaid balance ($7.0 million as of March 31, 2015) due upon maturity (February 4, 2016). We estimate that approximately $0.4 million in interest will be paid for the remainder of 2015 and approximately $43,000 in 2016 through maturity.

Funds from Operations and Modified Funds from Operations

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc., or NAREIT, an industry trade group, has promulgated a measure known as funds from operations, or FFO, which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to net income or loss as determined under generally accepted accounting principles in the United States, or GAAP.

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We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment write-downs, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above.

The historical accounting convention used for real estate assets requires depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Additionally, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indicators exist and if the carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated undiscounted future cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization and impairments, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. However, FFO and MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under GAAP, that are typically accounted for as operating expenses.

Management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start up entities may also experience significant acquisition activity during their initial years, we believe that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. We will use the proceeds raised in our offering to acquire properties, and we intend to begin the process of achieving a liquidity event (i.e., listing of our common stock on a national exchange, a merger or sale of the company or another similar transaction) within seven to ten years after the

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proceeds from the primary offering are fully invested. Thus, we will not continuously purchase assets and will have a limited life. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Investment Program Association, or IPA, an industry trade group, has standardized a measure known as modified funds from operations, or MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our offering has been completed and our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our offering and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on our operating performance during the periods in which properties are acquired.

We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. While we are responsible for managing interest rate, hedge and foreign exchange risk, we do retain an outside consultant to review all our hedging agreements. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such gains and losses in calculating MFFO, as such gains and losses are not reflective of ongoing operations.

Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses, amortization of above and below market leases, fair value adjustments of derivative financial instruments, deferred rent receivables and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income. These expenses are paid in cash by us, and therefore such funds will not be available to distribute to investors. All paid and accrued acquisition fees and expenses negatively impact our operating performance during the period in which properties are acquired and will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to

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cover the purchase price of the property, these fees and expenses and other costs related to such property. Therefore, MFFO may not be an accurate indicator of our operating performance, especially during periods in which properties are being acquired. MFFO that excludes such costs and expenses would only be comparable to that of non-listed REITs that have completed their acquisition activities and have similar operating characteristics as us. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments of derivatives as items which are unrealized and may not ultimately be realized. We view both gains and losses from dispositions of assets and fair value adjustments of derivatives as items which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. The purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and cash flows in order to make distributions to investors. Acquisition fees and expenses will not be reimbursed by the advisor if there are no further proceeds from the sale of shares in our offering, and therefore such fees and expenses will need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties or from ancillary cash flows.

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors. For example, acquisition costs are funded from the proceeds of our offering and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with GAAP measurements as an indication of our performance. MFFO has limitations as a performance measure in an offering such as ours where the price of a share of common stock is a stated value and there is no net asset value determination during the offering stage and for a period thereafter. MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and net asset value is disclosed. FFO and MFFO are not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO or MFFO.

Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.

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The below table illustrates the items deducted from or added to net loss in the calculation of FFO and MFFO during the periods presented. The table discloses MFFO in the IPA recommended format and MFFO without the straight-line rent adjustment which management also uses as a performance measure.

	For the Three Months Ended March 31,
	2015			2014
Net loss	$	(216,628	)	$	(1,267	)
FFO adjustments:
Depreciation and amortization of real estate assets		57,445			—
FFO		(159,183	)		(1,267	)
MFFO adjustments:
Acquisition and other transaction related costs expensed		192,616			—
MFFO		33,433			(1,267	)
Straight-line rent(1)		—			—
MFFO – IPA recommended format	$	33,433		$	(1,267	)
Net loss	$	(216,628	)	$	(1,267	)
Less: net loss attributable to noncontrolling interests		34			—
Net loss applicable to Company’s common shares	$	(216,594	)	$	(1,267	)
Net loss per common share, basic and diluted	$	(0.41	)	$	(0.06	)
FFO	$	(159,183	)	$	(1,267	)
Less: FFO attributable to noncontrolling interests		20			—
FFO attributable to Company’s common shares	$	(159,163	)	$	(1,267	)
FFO per common share, basic and diluted	$	(0.30	)	$	(0.06	)
MFFO – IPA recommended format	$	33,433		$	(1,267	)
Less: MFFO attributable to noncontrolling interests		(26	)		—
MFFO attributable to Company’s common shares	$	33,407		$	(1,267	)
Weighted average number of common shares outstanding, basic and diluted		528,564			20,000

(1) Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance.

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Distributions Declared by our Board of Directors and Source of Distributions

The following table provides a summary of our quarterly distributions declared during the periods presented. The amount of distributions paid to our stockholders in the future will be determined by our Board of Directors and is dependent on a number of factors, including funds available for payment of dividends, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code. Additionally, our stockholders have the option to elect the receipt of shares in lieu of cash under our DRIP.

	Three Months Ended March 31, 2015
Distribution period:	Q1 2015			Percentage of Distributions
Date distributions declared		January 14, 2015
Date distributions paid		March 15, 2015
		April 15, 2015
Distributions paid	$	68,088
Distributions reinvested		19,438
Total Distributions	$	87,526
Source of distributions:
Cash flows provided by operations	$	—			0	%
Offering proceeds		68,088			78	%
Proceeds from issuance of common stock through DRIP		19,438			22	%
Total Sources	$	87,526			100	%
Cash flows provided by/(used in) operations (GAAP basis)	$	(106,309	)
Number of shares (in thousands) of common stock issued pursuant to the Company’s DRIP		2,046

The table below presents our cumulative FFO attributable to the Company’s common shares:

	For the period October 5, 2012 (date of inception) through March 31, 2015
FFO attributable to Company’s common shares	$	(304,359	)
Distributions Paid	$	42,253

New Accounting Pronouncements

See Note 2 of the Notes to Consolidated Financial Statements for further information of certain accounting standards that have been issued or adopted during 2015 and certain accounting standards that we have not yet been required to implement and may be applicable to our future operations.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. The primary market risk to which we are currently and expect to continue to be exposed is interest rate risk.

We are currently and expect to continue to be exposed to the effects of interest rate changes primarily as a result of borrowings used to maintain liquidity and fund the expansion and refinancing of our real estate investment portfolio and operations. Our interest rate risk management objectives have been and will continue to be to limit the impact of interest rate changes on our earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes. As of March 31, 2015, we did not have any derivative agreements outstanding.

The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable (included in other assets) and accounts payable and accrued expenses approximated their fair values as of March 31, 2015 because of the short maturity of these instruments.

As of March 31, 2015, the estimated fair value of the Revolving Promissory Note approximated its carrying value ($7.0 million). The fair value of our Revolving Promissory Note was determined by discounting the future contractual interest and principal payments by market interest rates. The balance of the Revolving Promissory Note is due on February 4, 2016.

In addition to changes in interest rates, the value of our real estate and real estate related investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants, which may affect our ability to obtain or refinance debt in the future. As of March 31, 2015, we had no off-balance sheet arrangements.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, management, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our chief executive officer and chief financial officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no significant deficiencies or material weaknesses identified in the evaluation, and therefore, no corrective actions were taken.

PART II. OTHER INFORMATION:

ITEM 1. LEGAL PROCEEDINGS

From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.

As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

ITEM 1A. RISK FACTORS

We discuss in our Annual Report on Form 10-K various risks that may materially affect our business. We use this section to update this discussion to reflect material developments since our Form 10-K was filed. For the quarter ended March 31, 2015, there were no such material developments.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

During the period covered by this Form 10-Q, we did not sell any unregistered securities.

Use of Offering Proceeds

The Company’s sponsor is David Lichtenstein (“Lichtenstein”), who does business as The Lightstone Group, LLC (the “Sponsor”) and is the majority owner of the limited liability company of that name. The Company’s advisor is Lightstone Value Plus REIT III LLC (the “Advisor”), which is wholly owned by our Sponsor.

The Company’s registration statement on Form S-11 (File No. 333-195292), pursuant to which it is offering to sell up to 30,000,000 shares of its common stock at a price of $10.00 per share, subject to certain volume discounts, (exclusive of 10,000,000 shares which are available pursuant to its distribution reinvestment plan (the “DRIP”) at an initial purchase price of $9.50 per share, was declared effective by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933 on July 15, 2014.

On December 24, 2012, the Company sold 20,000 Common Shares to the Advisor for $10.00 per share.

On July 16, 2014, the Advisor contributed $2,000 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. The limited partner has the right to convert operating partnership units into cash or, at the option of the Company, an equal number of common shares of the Company, as allowed by the limited partnership agreement.

Lightstone SLP III LLC (“Special Limited Partner”), a Delaware limited liability company of which Mr. Lichtenstein is the majority owner, will be a special limited partner in the Operating Partnership and has committed to purchase subordinated profits interests in the Operating Partnership (“Subordinated Participation Interests”) at a cost of $50,000 per unit for each $1.0 million in subscriptions accepted for the Offering or any follow-on offering. The Special Limited Partner may elect to purchase the Subordinated Participation Interests for cash or may contribute interests in real property of equivalent value. The Subordinated Participation Interests may be entitled to receive liquidation distributions upon the liquidation of Lightstone REIT III. (See Note 6 for a summary of related-party fees).

As of March 31, 2015, we have not entered into any arrangements to acquire any specific property or to make or invest in any specific loan to make any other permitted investment.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibit Number	Description
31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
101*	XBRL (eXtensible Business Reporting Language). The following financial information from Lightstone Value Plus Real Estate Investment Trust III, Inc. on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 13, 2015, formatted in XBRL includes: (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statements of Stockholders’ Equity, (4) Consolidated Statements of Cash Flows, and (5) the Notes to the Consolidated Financial Statement.

* Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC.
Date: May 13, 2015	By: /s/ David Lichtenstein David Lichtenstein Chairman and Chief Executive Officer (Principal Executive Officer)
Date: May 13, 2015	By: /s/ Donna Brandin Donna Brandin Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)

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